FORMALIZATION OF INFORMAL REAL ESTATE

Prof Chryssy Potsiou

FIG President, UNECE WPLA bureau member
chryssy.potsiou@gmail.com

TUFE2018, Joint TCG/FIG/UIA/ECCE/UNECE WPLA, Greece

 Content of the FIG/UNECE publication

Background:
1. Definition / size of the problem in the various UNECE countries
2. reasons /causes
3. various types of informal development in the various countries (with
many similarities)
Albania, Cyprus,
Greece, FYR of Macedonia
Montenegro
But also from
Georgia, Italy, Kyrgyzstan

4. Assessment of
the adopted
policies
 Identified causes

 Major political changes coupled with rapid urbanization, and often uncontrolled,
massive internal migration, conflicts, marginalization, natural disasters,
cumbersome authorization processes for home improvements and
modernization, and corruption may be listed as some of the causes.

 absence of policies by the states and their failure to adopt pro-growth planning
as well as affordable housing policies, weaknesses of the private sector, the
lack of political will to develop land policies which would facilitate the recognition
of existing tenure and private property rights and will aid the transition from
centrally planned to market economies; and the failure or reluctance of state
agencies to support the economic reforms.
The obvious

 when neither the state nor the private sector provide

legally the supply of appropriate real estate types and
quantities to satisfy the current demand, people build
informally.
Informality in the real estate sector is directly
related to a general informal sector

 Informality is a prominent characteristic of

development in the so-called frontier markets ; it
affects public revenues, productivity and job
opportunity ; creates non-productive, dead capital ;
competition is distorted

 Informality in the real estate sector and real estate

markets is considered to be a social, an economic
and an environmental challenge

 Since 2005 we have systematically encouraged

countries to initiate - where possible - formalization
projects

 We have assessed the policies adopted from the

various governments (formalization or demolition)
 Title registration is important

Registration improves
 security of tenure,
 establishes property rights over the investment,
 minimizes lending risks and
 provides easy access to credit and funding mechanisms; enables
the poor to unlock the value of their land
 it also improves legal protection, as well as legal empowerment of
occupants/owners.

Karl Marx saw private property as the source of wealth and called for its elimination to
promote equality.

A century and a half later, we know that a country without a formal system for registering
property rights limits its own economic development and prevents its citizens from
realizing their full potential.
a long-lasting, bureaucratic and
expensive formalization process?
 we have also managed to identify and quantify the annual GDP loss caused by
delaying the formalization of the informal real estate sector, and have proved that it
can be significant and worthy of serious consideration.

 The formalization of informal development is the most important step towards

formalization in the real property market.

 If there is little or no possibility of selling a house, home

ownership in the self-made cities can offer little in the way of
capital accumulation.

 It is hard to make money from a house that cannot be sold,

or nobody is interested to buy.
Why do we need some TG for Formalization?

Rationale for guidelines

a Fit for Purpose solution is

Why do we need
needed to meet the SDGs timely,
guidelines?
reliably, inclusively & affordably

Policies adopted from the various governments to
address the problem:
 often lack of a concrete Fir for Purpose Strategy
and in many countries formalization is a long
lasting, bureaucratic and expensive procedure
e.g., require all improvements,
conformity to regulations, plus penalties
to be undertaken by the occupants prior
to any formalization; or provide planning
amnesty, but require high penalties
while ownership titles where missing are
politically more difficult to provide

 may start with the best of intentions but become

bogged down due to administrative bottlenecks the momentum is missed
or change of government

 reflect that governments often understand the

problem but they do not fully realize the size of
its impacts

Economic impacts Social impacts Environmental impacts

Direct: loss of taxation
revenue & fees (informal real
estate cannot be transferred,
rented or mortgaged)
Indirect: no investment on
informal real estate, loss of job
positions & taxation revenue
through undeclared income of
labor in informal sector
insecure tenure, risk for flooding, pollution of
evictions or demolition waters, soil and air due to
illegal wells and sewage
no access to credit, risky
systems; high energy
investment, permanent
consumption due to
threat
commuting and poor
lack of services, poor construction quality
quality of construction/risk
for health or life
 A General Guide
Who to use the guidelines?

The State Should explain why a country would

politicians
choose:
to go beyond the established
Central Government,
scientific/engineering/planning practice, in
Parliament members order to successfully deal with:
 the Property Market Challenges,
Local Authorities,  Funding Challenges,
Municipalities,
State Agencies
 Structural Stability Challenges,
 Environmental Challenges and
The Private
sector
The Society
 difficult Ethical Challenges
Professionals involved in the real estate sector
 Hostile reactions to a formalization
lawyers, planners, economists, notaries,
Education/Academia
project
surveyors, civil engineers, constructors, real Schools
estate agents, appraisals, Universities
etc
NGOs

Banks & Funding

mechanisms
 List of issues to be taken into
consideration
 raising awareness about the economic and social benefits of
formalization and other socio- economic realities
 develop a FFP strategy
 legal and regulatory issues
 Procedures/fees
 technical advice
on how to:
 engage all parties
 provide incentives
 implement , register, improve, or demolish
 monitor the protected assets
 avoid corruption
 improve relevant policies for
sustainable real estate markets